B&N Not Selling Retail Business; Outlines New Strategies

by Calvin Reid
|

Aug 21, 2013

Despite industry predictions and an earlier plan by B&N chair Len Riggio that he would buy the retail business, B&N executives backed off from plans to separate the B&N retail and Nook Media business units. In a conference call following the release of B&N’s fiscal 2014 first quarter results, B&N executives cited the importance of device production to content providers, once again pointed to the advantages of its physical stores in conjunction with digital distribution and outlined new strategies to address mounting Nook Media losses.

While Riggio announced that he was suspending efforts to buy the retail business, he also made it clear that “I reserve the right to pursue an offer in the future," so the issue may be revisited. B&N president and Nook Media CEO Michael Huseby, CEO of B&N retail Mitch Klipper and other executives were on hand to address questions about the shift in strategy, including concern from some investors on the call that Nook Media is masking the value of B&N retail; and that B&N retail is financing the mounting losses in the Nook Media unit. Huseby said the sale to Riggio has been halted and executives were reviewing the strategy.

Huseby emphasized that “despite the Nook losses,” B&N’s overall position was “strong” and the company ended the first quarter with a net cash position of $73 million. He assured investors that they intend for Nook Media, which includes the college unit which reported a growth in revenue in the quarter, “to remain self-sufficient and not use retail’s cash to fund its needs.” B&N Executives contended that “the problem is not with the devices” emphasizing that “the problem has been the decisions by management about demand,” for the devices.

Huseby emphasized that “wholesale outsourcing of device manufacturing is not a smart idea.” He praised the Nook development team, noting that “they do a great job and don’t deserve to be outsourced. If we want to be in the content business we need to be in the device business.” Indeed, he said that “we’re staying in the device business but partnering with manufacturers. We will continue to design and develop devices and we will continue our Nook device line.” He said company was “already shifting to manufacturing partnerships for the color devices,” noting that “we can de-risk the device business plan.” And he said the company will introduce a new Nook device for the holiday season and that more digital products are in development.

B&N executives focused their overview on a “new management” team set in place after the departure of former BN.com president William Lynch and a sharper focus on B&N retail assets working in conjunction with Nook Media. Huseby said B&N has a 22% share of the U.S. e-book market, that B&N has sold more than 10 million Nook devices and there are more than 6 million B&N reading apps on third party devices. He noted that “more than 5 million B&N members visit the stores and we can serve them better with both digital and physical resources.”

New initiatives include new product development in partnership with Microsoft, a major investor. Huseby cited plans to increase sales of existing customers (active Nook users buy 3 to 4 e-books a month), growing sales of content priced at $2.99 and lower, more transparency (including breaking out results for content and device revenue) and a focus on digital educational content, “where demand is exploding.” (he also cited the College division, which closed 9 stores and added 15 new stores in the first quarter). Nook Press, B&N’s self-publishing platform, is adding “thousands of new titles each week and Nook Press sales have increased 50% over the last year; our unique and innovative catalog of e-content will grow.”

Klipper cited plans for a “complete upgrade of the BN.com website, e-commerce capability, faster shipping and better cost management.” He cited a new 28,000 square foot store that has just opened in Indianpolis, with a “big children’s department with innovative toys and games,” that will also serve as a community center for events.” He was optimistic about holiday sales, citing a strong fall book schedule with new titles coming from Stephen King, John Grisham, Bill O’Reilly and Malcolm Gladwell.

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